The Tax Administration Act deals with the waiving of Taxes owed to SARS and also a Compromises on Debt owed by Individuals, Trusts, Close Corporations and Companies. SARS may be willing to write off or reduce taxes, penalties, interest and even additional tax owed to SARS. Specific situations and conditions apply. “Terms and conditions apply” – as the saying goes…
The term “compromise” is defined as an agreement;
- that is entered into between SARS and the taxpayer
- where the debtor undertakes to pay an amount which is less than the full amount of the tax debt due to SARS
- in full settlement of the debt
- SARS agrees to write off the remaining portion of the debt permanently.
(Article excerpts wit compliments of www.thesait.org.za)
The basis for the compromise is that, where a taxpayer is unable to pay the debt, SARS will secure the highest return from the recovery of the taxes duet. The request for a compromise must be initiated by the taxpayer and / or his registered Tax Practitioner. SARS needs detailed information in respect of all financial affairs before making any decision as to whether to compromise in settling. When considering whether to enter into a compromise with the taxpayer, SARS will consider the history of payments by the taxpayer, past transgressions of tax law plus the reasons why the taxpayer is unable to pay their debt in full.
A compromise may not be entered into where:
- The debtor was party to an agreement with SARS to compromise an amount of debt within a period of three years before the current request for compromise;
- The debtor’s tax affairs are not up to date;
- Another creditor has communicated its intention to, or has, initiated liquidation or sequestration proceedings against the debtor;
- The compromise will prejudice other creditors, or if the other creditors will be placed in a position of advantage relative to SARS;
- It may adversely affect broader tax compliance;
- The debtor is a company or trust and SARS is unable to take action against or recover the debt from the personal assets of the persons related to e entity.
Where a Business Rescue situation exists – a compromise can be beneficial in conjunction with other creditors, to enter into a reduction of debt in order to keep a business afloat as part of restructuring the past debt of the business.
SARS may also decide to waive an amount of tax debt temporarily if it is considered unviable to pursue the taxes. In this situation, the debtor is not absolved from the liability but is given a reprieve from paying the debt for a period. SARS may decide to withdraw its decision to waive of the debt if it believes that circumstances have changed to make pursuing the debt viable.
In normal practice (optimistically) taxpayers won’t need to compromise their tax liability, but should it be worthwhile, they are advised to approach SARS for a compromise, with the assistance from a registered tax practitioner.
In my experience, SARS is willing to enter into compromises where the taxpayer is in financial woe and has no realistic possibility of settling its tax debt which will bring the taxpayer immediate financial relief.
Gavin Bacon as a member of the Commercial Division of the Tax Court and of Professional Accountants and Tax Consultants (www.patc.co.za), with his 28 years’ experience, Master Tax Practitioner Status with SAIT, Professional Accountant with SAIPA and a B Tech in Taxation equips himself perfectly to assist in matters such as these. Perfect success rate….
Contact Gavin on 031 702 8112 firstname.lastname@example.org